Russia

Iranian Deputy Foreign Minister Sayed Sadek Kharrazi met with Russia's Deputy Chairman of the Federation Council Vladimir Platonov on Feb.17 in Moscow. In discussing cooperation between Iran and Russia in the Caspian area, Kharrazi pointed out that some countries in the Caspian basin seek closer association with the West. Kharrazi's support for the countries' orientation toward the West implies that Iran would prefer Western influence on its northern border. His statement marks the first time in a long time that Iran has publicly stated its opposition to Russia asserting its control over the southern Caucasus.

Iran is effectively telling Russia that it opposes Russia's reassertion of control over areas that Moscow considers to be in Russia's sphere of influence. Presumably, Iran's concerns extend to cover the Central Asian republics as well.

Kharrazi's comments imply two possible motivations: Either Iran prefers the West in the South Caucasus or it prefers that Russia not be there at all. Iranian reformist President Mohammad Khatami's desire to improve relations with the West explains Iran's desire for a Western presence in the region. However, a Russian presence doesn't hinder Iran from engaging the West, which highlights the second and more important reason for Iran's concern.

Iran doesn't want Russia dominating the southern Caucasus, because Russian influence on Iran's northern borders threatens its security. Granted, Moscow and Tehran currently have warm ties. However, Tehran would prefer the Central Asian and Caucasian buffer zones to exist. Russia today is significantly different than the one that existed only a few months ago under former President Boris Yeltsin. Russia's acting President Vladimir Putin has stirred up and capitalized upon Russian nationalism. The country has expanded its influence southward into the Caucasus, and it is unclear how far this expansion will go.

Iran has made clear its wishes for the Caspian region, but it is not yet clear how, or if, Iran plans to act upon these wishes. It is highly unlikely that Iran is ready to obstruct Russian influence in the Caucasus. It currently has neither the political will nor the military or economic means to do so. A gradual shifting of policy is more likely. This will not change the Iran-Russia relationship in the short-term but may have long-term repercussions.

In the short-term, Iran and Russia will continue to cooperate. Iran purchases a significant number of Russian arms, and Moscow is helping Tehran construct a nuclear facility. Russia needs money, and Iran needs Russian arms and technology. In the long-term, however, as reformist politics prevail in Tehran and as Iran breaks its isolation, it will eventually move closer to Western nations.

Before turning toward the West, however, we would expect to see Iran more actively pursue ties with Central Asian and Caucasian governments, tactfully urging them to resist Russian pressures. As the governments begin to fall under Russia's sway, we would also expect to see Iran funding and arming insurgencies in the region. This would be done under the guise of protecting Islam, of course, but it would have concrete strategic implications.

Iran and Russia can maintain good relations, while Caucasian and Central Asian buffer zones exist. Kharrazi's statements emphasize the strategic importance of that buffer zone to Iran-Russia ties. Iran so opposes Russian influence returning to the Caucasus that it actually prefers Western influence. However, Putin's new policies directly challenge Western influence in the Caucasus and Central Asia. Iran will soon find itself trying to balance its relations with both sides. However, Tehran has made clear its preference. Iran will not sit idly by while Russian influence creeps closer to its borders.

As has occurred throughout history, responsibility for Russia's calamities are once again laid at the feet of the Westernizers and their conspiratorial Western allies. It now emerges that Western money served only to enrich and empower a small cabal in the Kremlin before cycling back to Western banks. In exchange, the Yeltsin cabal sacrificed Russian international prestige and interests.

Yeltsin's tenure, and that of his self-serving supporters, is nearly at an end. The question is, is Putin the end or the interim? Is he Lenin or Kerensky? Putin and his backers do not represent the farthest possible reaction of Russian politics. They understand the need for continued economic and political engagement with the West, albeit under significantly less self-debasing terms. If the purge now under way gets out of hand, Putin and his backers could fall victim to a still more reactionary force. If Putin turns out to be Kerensky, who will be Lenin?

Until a few months ago, Russia had no clear-cut national security policy. Since the end of the Cold War, Russian security doctrine had devolved into Russian economic policy. Russian economic policy consisted of intensifying relations with the advanced industrial, capitalist world in order to create the financial structures and relationships needed to jump-start the economy. Russian national security doctrine consisted primarily of doing nothing to disrupt those economic relationships while, within the framework of the first imperative, maintaining the territorial and institutional integrity of the Russian Federation.

Thus, the most important aspect of the new Russian national security doctrine is that it exists at all. Putin's announcement on first strike has as its primary purpose the elevation of national security issues to the same level as national economic issues. In other words, Putin's announcement on nuclear weapons represents the death of the preceding national strategy, which relegated national security issues to a distant second place behind national economic concerns. It was intended to stun a number of audiences into realizing that the post-Cold War world is gone.

The choice of the nuclear issue served a number of purposes and spoke to a number of audiences. The first audience was the United States and its allies. As our readers know, it has been our view that the West's decision to bomb Iraq in December of 1998 - followed by the war in Kosovo, both in direct opposition to Russian wishes - generated a revolution in Russian policy. Those two actions convinced the Russians that the United States intended to reduce Russia to the status of a tertiary power. Washington's systematic indifference to Russian wishes convinced the Russian national security community that without leverage against the United States, Russia would have no traction whatsoever. Economic relations with the West had effectively collapsed in the financial crisis of August 1998, so the Russians felt they had little to lose.

Putin's announcement is perfectly designed to drive home the price and risks of U.S. economic and strategic policy. It systematically accomplishes what Yeltsin tried spasmodically when he reminded Washington that Russia had nuclear weapons and was prepared to use them. First, the Putin doctrine reminds the United States that Russia is the only nation in the world with sufficient nuclear weapons of sufficient range to conduct an annihilating attack on the United States. To put it bluntly, Russia could choose to kill a large percentage of the American public if it is prepared to endure the same.

Second, Moscow's new stance poses a practical problem for the United States, which must now at least consider Russian responses. No matter how unlikely a Russian first strike is, there is a huge difference between a negligible threat and a non-existent one, particularly at the orders of magnitude involved. During the Cold War, the threat of a Soviet nuclear response was in the back of every policy maker's mind when dealing with issues from Nicaragua to Angola to India. That threat disappeared with Glasnost. Putin intends to resurrect it.

Third, this is a meaningful threat because of the relative weakness of Russia's conventional forces. Consider Western nuclear strategy, particularly during the Cold War. The United States and NATO never renounced a possible first strike; indeed, it was explicitly understood that a massive Soviet attack on Western Europe would trigger the use of tactical nuclear weapons and, if necessary, higher levels of nuclear response. Russia, on the other hand, had long called for a no-first-strike commitment by the West and in fact adopted that stance in 1997. Russia, with a conventional weapons advantage, was always more interested in exploiting that advantage and saw the use of nuclear weapons as undermining it. Nuclear weapons were the critical equalizer to the superior numbers of Russian conventional forces.

But to create strategic parity beyond the battlefield, doctrine had to be married to unpredictability. It was never clear to anyone that the United States would in fact launch a first strike against the Soviet Union upon the invasion of Germany. No one knew what the U.S. president would order at the critical moment. That was precisely the advantage. The very uncertainty of the American response limited the Soviets' room for maneuver and imposed severe limits on Moscow's willingness to take risks. Putin is now trying to reverse the equation. Russia now has a substantial disadvantage in conventional forces. By renouncing the no-first strike rule, Putin has placed Russia in the position of the United States during the Cold War.

In turn, the threat will force the United States and Europe to reconsider the risk of adventures like Kosovo. Obviously, the Russians are unlikely to use nuclear weapons. but the term "unlikely" does not mean impossible. It means low probability, or possibility. The mere possibility that another Kosovo could trigger a nuclear response changes the calculus of Western intervention. Since the direct benefit to the intervening powers is minimal, the corollary must be equally low cost and low risk. Since no nation is entirely predictable, the risk of a nuclear response can easily shift the decision from "go" to "no-go."

This is particularly true for European members of NATO and for Japan, whose proximity to Russia and appetite for risk-taking is substantially less than that of the United States. At the very least, the mere threat of a nuclear reaction makes it impossible to treat Russia with the contemptuous indifference shown during the Iraq and Kosovo affairs. With this announcement, Putin has bought himself not only a seat at the table, but, in all likelihood, the demand by U.S. allies that Russia buy into future military intervention.

There is a second audience: the other members of the former Soviet Union, many of whom are members of the Commonwealth of Independent States (CIS), which, not coincidentally, is holding a summit one week from today. One of the outcomes of the collapse of the Soviet Union was that, with intense U.S. urging, all nations other than Russia gave up their nuclear weapons. Whatever the wisdom of that policy, the result was that Russia is the only former Soviet republic with nuclear weapons.

Russia has always been first among equals in the CIS, but Putin's announcement will immediately help Moscow re-order its relationships closer to home. First, the war in Chechnya will be affected. With some reason, Russians are convinced that outside forces - backed by the United States - are supplying Chechen rebels through neighboring Georgia. The situation in Chechnya reminds many Russian military men of Afghanistan, where a great power created logistical support systems and sanctuaries in a neighboring country, bleeding Moscow's forces. Putin is now reminding the United States that the survival of the Russian Federation - intact - is a fundamental national interest. Therefore, any aid to the Chechens threatens an interest so profound that the use of nuclear weapons might be rational. This must trigger a re-evaluation of U.S. policy.

Second, the Georgians themselves, who have felt relatively secure as an American partner, are being reminded that forces are at play beyond their control. If the Georgians' entire calculus has been that the war would be one of conventional force on conventional force, the Georgians should guess again. The willingness of the Russians to use tactical nuclear weapons to disrupt lines of supply into Chechnya cannot be discounted. By doing this, the Russians are transforming the war, putting Georgia's security - instead of Russia's territorial integrity - in jeopardy.

Third, the Russians are delivering a message to the Chechens. The Chechens are seeing this conflict just as they did during the 1994-1996 war. They are fighting on their terrain and are prepared to take serious losses for national independence. Russian conventional forces cannot seal off the lines of supply from Georgia, nor can they occupy the mountainous terrain south of Grozny. Indeed, given the costs of urban warfare, they cannot easily take Grozny itself. Therefore, the theory goes, extended warfare favors the insurgent nationalist group. Time is on the side of the Chechens. Putin just indicated, however, that he has the means to sharply increase Chechen casualties without increasing Russian ones. That is a sobering thought, to say the least.

This is a matter of general concern for all the countries surrounding Russia. So long as the security equation is stated in purely conventional terms, the West can help neighboring nations, from the Baltic Sea to Central Asia, pose a serious problem to the Russians. Once nuclear weapons are introduced into the equation, a very different outcome occurs. First, the conventional supplies provided become unimportant. Second, the risks involved in providing or accepting conventional weapons soar.

The final audience for this announcement is perhaps the most important: the Russian public. Putin has been enormously popular for taking vigorous action to end his country's declining world status. The announcement intrinsically satisfies Russians and helps boost Putin's popularity on the verge of his campaign for the presidency. As winter grips Chechnya and large-scale military operations, particularly air operations, become more difficult, the emergence of the nuclear threat suggests an end to the war even if conventional forces fail. .

Putin's announcement on nuclear weapons is therefore an attempt to re-order Russia's relationship with the United States, the rest of the West, the former republics of the Soviet Union and ultimately, to reconcile Russia's own self-image. It is a clever move similar to the U.S. strategy of using nuclear threats to limit the maneuvering room of other players. But it must be remembered that the United States was primarily fighting for the global balance of power. The Russians today are fighting for the very survival of their federation. That means that the threat to use nuclear weapons, an element of war games in the United States, has some very serious possibilities when used by the Russians.

It is not inconceivable that the Russians, frustrated by their inability to seal their frontier with Georgia and by Georgia's inability or unwillingness to work with them, would use tactical nuclear weapons. Putin remembers Afghanistan well. He is not going to be drawn into another Afghanistan, nor is he going to withdraw from Chechnya. In the extreme case, anything is possible. And that is precisely the ambiguous situation Putin wants to create. He wants Russia's antagonists to peer into the abyss and see the worst. He is calculating, quite rightly we think, that this will dramatically increase the caution and respect with which Russia is treated. That will yield an international payoff for Russia - and a massive domestic payoff for Putin.

Despite Russia's social, demographic and economic decline, Russia under acting President Vladimir Putin is managing to politically reassert its interests throughout much of the former Soviet Union. At the recent summit of the Commonwealth of Independent States [ http://www.stratfor.com/CIS/commentary/c0001260125.htm], Putin demonstrated his ability to lure and cajole the other CIS members into cooperation. Putin's tough line in Chechnya [http://www.stratfor.com/CIS/commentary/c0001190220.htm], too, has earned him fear and grudging respect in much of the former Soviet Union. Yet the Chechen war has all but ostracized Russia throughout the West.

As a result, an upcoming trip by Russian Foreign Minister Igor Ivanov to North Korea illustrates a new decision by Moscow to change the rules of the larger diplomatic game with the West. No longer content to dine on the scraps the West deems fit to dispense from the table of the IMF, the Putin government is attempting to increase Russia's leverage by re-activating Soviet-era relationships. In doing so, Moscow is clearly attempting to alarm Western governments.

Ivanov is set to visit North Korea Feb. 9-10, the first time in a decade that Russia has significantly engaged the Pyongyang government. The last major dignitary from Moscow was then-Soviet Foreign Minister Eduard Shevardnadze in 1990. Like Shevardnadze then, Ivanov now will discover an economically backwards, corrupt and teetering regime that has survived by completely separating itself from the international community. In the Russian government press, a so-called Treaty on Friendship, Good-Neighbor Relations and Cooperation, which will be signed, is being trumpeted as an important event. The Putin government hopes that North Korea will function as a geopolitical level for Russian influence in a very dynamic - and very tense - region.

On another front, at least one prominent politician has announced that another old relationship is being revived: the one between Moscow and Baghdad. Vladimir Zhirinovsky, head of the ultra- nationalist Liberal Democratic Party, announced Feb. 7 that he reached an agreement with Iraqi President Saddam Hussein on the stationing of Russian warships at Iraqi naval bases. It remains to be seen whether the Russian government was even aware of Zhirinovsky's efforts, but the goal appears the same - gaining a potential diplomatic lever that will complicate every Western action in the Persian Gulf.

Ivanov is also planning to visit Vietnam Feb. 13-14. Due to a large population, mineral resources and proximity to trading routes, Vietnam holds significant promise as a trading partner for Russia. Politically as well, Vietnam and Russia share a significant relationship. Vietnam serves as the coordinator of relations between Russia and the Association of Southeast Asian Nations. This role, the Moscow-Beijing relationship and Russian membership in the Asia Pacific Economic Cooperation trade grouping are Russia's three links to the Pacific Rim. Furthermore, Vietnam's recent decision to abandon economic reforms has left it looking to old allegiances for support.

Russia views these states as political chips in a larger game with the United States. North Korea, Iraq and Vietnam oriented toward Moscow would grant Russia the ability to apply pressure on three regions vital to U.S. security.

However, Moscow's attempt to rewrite the geopolitical rules will not come easily. Iran, despite its past friendly relations with Russia, will react sharply against any new foreign presence in the Persian Gulf. China will not take kindly to any Russian attempts to gain influence either in North Korea and Vietnam.

But the prime target of Russia's change in strategy - the West - seems oblivious to the change. Europe and the United States are still holding out the possibility of IMF loans if Russia rectifies its bad behavior in Chechnya. However, few in the West realize that Russia no longer cares. After 10 years of nearly terminal decline, Russia has ceased to play by Western rules.

The new strategy is risky. Putin is hinting at the potential of confrontation with the West, knowing full well that its choice of strategies may place Russia against Iran and China as well. But the Putin government appears to believe that Russia can no longer remain in its intolerable economic and political limbo. Instead, it is striking out on tried-and-true methods of global engagement that worked for the Soviet Union for a half century. Ivanov's trips to North Korea and Vietnam are but the opening steps.

The Times of India reported March 13 that Putin suspended the transfer of sensitive military technology to China. If true, this apparently pro-Western move marks another step in acting Russian President Vladimir Putin's tightrope walk between seeking a less acidic relationship with the West and catering to Russian nationalist passions. For the next few months Putin will lean increasingly toward an open rapprochement, knowing full well that his attempts will fail. But in failing, he will establish in Western and Russian eyes the need for a powerful - and by necessity ruthless - leader in Moscow.

Putin's past actions show he is willing to wield a political stick both at home and abroad in his efforts to establish Russia as a strong state with a strong regime. The war in Chechnya - atrocities and all - vividly demonstrates the lengths to which he will go. His use of less than polite methods of diplomacy in bringing Georgia and Ukraine to heel grant a glimpse into what he may one day be willing to do to increase Russian influence over other areas of the former Soviet world. His willingness to court former Soviet client states shows he is willing to adopt riskier - and much more confrontational - strategies should the West seek to isolate Russia.
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But in recent weeks Putin has shown a more congenial face. In late February, Putin forced the Russian security services to release Radio Free Europe journalist Andrei Babitsky over the protests of many in the Duma. On March 5 he startled the world by rather flippantly stating that there was no reason why Russia could some day join NATO. His March 11 meeting with U.K. Prime Minister Tony Blair was all sunshine and compliments. On March 13 the Times of India - the paper of choice for KGB leaks during the Cold War - cited a report that Putin had suspended the transfer of sensitive military technology to China. If true, it would be a policy shift that would be sure to please the United States. As part of a carefully calculated strategy, the carrot has supplanted the stick.

This kinder, gentler face serves a number of purposes. First, it provides an olive leaf to Russia's battered liberals and reformers. The largely pro-Western liberals were soundly trounced in Russia's Dec. 19 parliamentary elections and participated in the boycott of the Duma to protest Putin's embracing of the Communists. Making pro-Western statements could lure liberals into supporting Putin's presidential bid in the March 26 elections. Putin is already expected to garner more than 50 percent of the votes and thus handily defeat the other 11 candidates without need for a second round of voting; with liberal support, Putin would win a commanding mandate to boot. This would strengthen Putin's standing both at home and abroad.

Putin's statements target an international audience as well. Russia cannot support its current budget without a new source of funding. First Deputy Prime Minister Mikhail Kasyanov is appealing to Western governments and the International Monetary Fund (IMF) to agree to both debt forgiveness and new loans. By making conciliatory statements Putin is helping to pave the path.
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After Putin is elected, there will be a flurry of high-level meetings as Putin and Western leaders size each other up. Russo- American and Russo-Japanese summits are already in planning. The crown jewel of these encounters is the Group of Eight meeting in Okinawa, Japan, June 21-23. Putin's friendlier face is essential in his attempts to obtain new loans, technology transfers, foreign investment and a seat for Russia at international tables. These are all prizes that Russia desperately needs, and Putin is willing to make sacrifices to achieve them.

Putin's diplomatic overtures will largely fail, and he knows it - even expects it. The Russian economy, despite having grown slightly in 1999, remains corrupted and anemic. The lack of a functioning legal or banking system and ongoing investigations into money laundering will keep foreign investment - both public and private - away. Germany, afraid to lose even more money in the Russian abyss, will refuse substantial renegotiation of Russia's $43 billion in debt to the Paris Club, a group of governmental lenders. The European Union and NATO, both preparing to expand further east, will continue to turn a partially deaf ear to Russian protests. Even if the West were committed to salvaging Russia, the task is now so mammoth that the combined economic might of the West could well prove insufficient.
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But Putin's openness will establish Russia as the party seeking closer ties, and the West as the party that rejected the hand of friendship. This rejection will allow Russia's leader to again - and justifiably - wield the stick from Moscow. In the months after the G-8 summit - the locale where the West's rejection will be made clear - there will be subtle splits within the West. Several states - such as France - will seek to engage the new face of Russia. Putin will stretch this policy of smiling, rabid nationalism as long as he can, on one hand building up Russia's military and preparing for the worst, and on the other continuing a sporadic dialog with Washington and Brussels and hoping for the best. The West is mirroring this policy by simultaneously promoting a greater cooperation while continuing with NATO and European Union expansion. This partial engagement - and the partially friendly face of Russia - cannot last long.
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Putin's support base consists of the military and intelligence services, covered with a mantle of nationalism. This will certainly grant Putin the presidency and allow him to carry on the war in Chechnya, yet neither Putin nor his advisors have managed to produce a coherent economic plan. Without continued confrontation and a target for Russian anger, Putin cannot placate the nationalists. Without economic recovery primed by foreign investment, he cannot disarm them. Eventually, the nationalist avalanche Putin started will overtake him, possibly even bury him, and the West can do nothing to help. The aftermath will feature an embittered Russia that the West spurned - and a leader with a very large stick.

With tax, corruption and embezzlement investigations against top Russian corporations proceeding at a blistering pace, President Vladimir Putin is making great strides in his efforts to rein in Russia's oligarchs. So far, the government has launched investigations or filed charges - ranging from fraud to tax evasion - against 13 major business leaders whose companies include Media- MOST, LUKoil and Gazprom.

However, as these investigations widen, they are beginning to take in some of Putin's own associates. The president may be dangerously close to compromising key political allies in his widening crackdown on the oligarchs. Putin's own prime minister, Mikhail Kasyanov, has been under scrutiny for alleged ties to organized crime. If Putin spares allies like Kasyanov, the president will lose political legitimacy and be branded an autocrat.

On July 12, investigators from the Russian Federal Tax Police Service (FSNP) announced the launch of a criminal case against auto giant AvtoVAZ. Vyacheslav Soltaganov, director of the tax police, told ITAR-Tass that the company, headquartered in the central Russian city of Togliatti, had concealed hundreds of millions of dollars from taxation by producing multiple vehicles with the same serial number - and then reporting the manufacture of a single automobile.

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With this case, investigators can snare more than a company set on a bold scheme; they can also snare two of Russia's most powerful businessmen. One is Boris Berezovsky, director of LogoVAZ, AvtoVAZ's sales arm, and most recently a detractor of the president's. Berezovsky has been named in the most recent criminal charges. The second man, AvtoVAZ Director Vladimir Kadannikov, said that the company would appeal the decision and the charges would not impact a joint production deal to be signed with the American auto giant, General Motors.

The tax police have simultaneously opened criminal charges against Russian oil giant, LUKOil, and its director, Vagit Alekperov. Tax Minister Gennadiy Bukayev told Interfax that the company had concealed revenue in "especially large amounts." Ironically, the tax minister himself had praised the company in May, handing it an award for being a conscientious taxpayer. Bukayev told Interfax that the company had won the award based on its own tax reports. Evasion was only discovered in a subsequent investigation.

The sweep of the government's investigation is now expanding exponentially, snagging the largest names in Russian business. The Media-MOST empire, which owns banking, broadcasting, satellite communications and banking interests, has been raided repeatedly. Gazprom, the country's natural gas giant, and its director, Rem Vyakhirev, are under investigation for questionable loans to Media- MOST. The director of LUKOil, Vagit Alekperov, the country's largest oil concern has been charged with tax fraud.

After years of corruption and crony capitalism, Putin is attempting to regain control of the Russian economy by imposing the rule of law. Successful investigations will allow the government to recover assets that were pillaged while at the same time reassuring nervous foreign investors that there corruption won't be tolerated in the Russian economy.
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But the success of the crackdown will generate its own logic - and a dilemma for the president. All the same allegations that are befalling Berezovsky, Alekperov and Gusinsky could be pinned on Putin's allies in the Duma. Kasyanov, for one, is under attack in the Duma for alleged ties to organized crime.

Putin will soon privately grapple to build a firewall between his allies and his foes. The web of oligarchs extends right to the door of the president. Putin must now decide whether to let his allies fall in the name of the law - or protect them and undermine his campaign and his own authority.